PBoC and China trade data help a risk revival

Market Overview

It seems as though markets are once more taking direction off news coming out of China this morning as actions from the PBoC and trade data are helping a revival in risk appetite. Yesterday as the People’s Bank of China held the fix on the yuan broadly flat, markets gains confidence to close strongly higher. Could the same be about to happen today? Another day where the PBoC decides to fix the yuan and the markets are supported again, with Asian indices reacting broadly positively and European markets set to follow suit. This mood has been exacerbated by news that the China trade data has not been as bad as feared. In dollar denominated terms both imports and exports fell for the year, but both beat expectations. This resulted in a strong improvement of the China trade surplus which had been expected to deteriorate. This means that the reversal signals on European markets (see the DAX as my chart of the day) are having a further boost this morning.

In forex trading we see the safe haven plays that have benefitted from the market fear, are now beginning to unwind. The yen has fallen away and the euro is also looking corrective. The dollar is performing much better, whilst the commodity currencies are also stronger. This improvement in risk sentiment has meant that the oil price is around 1% higher and gold is on the slide.

There is little on the economic calendar other than the US crude oil inventories which are expected to rise by 2.5m barrels.

Chart of the Day – DAX Xetra

I only covered the DAX a couple of days ago but there has been a significant move on the chart in the past couple of days which has potentially a negating impact. An inverted hammer at the bottom of a downtrend (Monday’s candle) has been followed by a strong bullish candle to form arguably a “Morning Star” 3 candle formation. This is a bullish set up and will give the bulls near term hope of a rebound, hope which has been bolstered by today’s early gains. I may be a bit bold calling a rebound in this market but the candles have completed. Interestingly this comes with the RSI turning up from the same point (just above 30) as it did with the December rally. This is a consolidation that is also coming around the 61.8% Fibonacci retracement of 8355/12390. The concern is that the bulls could not breach the 10,122 resistance so I am going to say that if this level can be breached then the market could engage a recovery towards the 50% Fib level at 10,373. A positive day today would also result in the Stochastics crossing to turn higher (unconfirmed buy signal). There is initial resistance at 10,224 and 10,343. This is certainly one to watch and whisper it quietly but could the DAX be close to another rally?

DAX   13012016


I spoke yesterday about a technical squeeze on the euro between the descending trendline of a downtrend channel and the old key pivot line at $1.0810. This continues to play out as the euro retains a slight bearish bias. Momentum indicators have rolled over again, with the RSI also showing a downtrend channel and the Stochastics having just turned lower as well. We find the euro testing $1.0810 again this morning and I still see this as a near term key indicator. A breach would suggest the euro may continue lower towards a test of the initial January low around $1.0720, whilst also interestingly taking the price back below all the moving averages (a negative signal. The hourly chart shows a sequence of lower highs and lower lows over the past few days but hourly momentum is reasonably benign still. Initial resistance with the latest lower high is at $1.0877 whilst the bulls will be eying yesterday’s high as a key barrier.

EURUSD   13012016


“The trend is your friend, until it ends” is a famous technical analysis quote and I think it is extremely apt here as Cable continues to drop within the four week downtrend. The downtrend comes in today at $1.4605. Momentum indicators remain firmly bearish and despite the stretched position of the RSI there is little real sign of a recovery. Yesterday’s candle was another strong bearish candle despite the rebound off a low of $1.4350 which has unwound by 100 pips. This move shows on the hourly chart as just another rebound that is helping to unwound near term oversold momentum and to renew downside potential. The move has still to even challenge the first resistance at $1.4490 and with the continued sequence in the stepped decline this is an ideal opportunity to start looking for the next chance to sell. There is a band of resistance $1.4490/$1.4600 which will now be eyed by the bears. Anyone looking for a buy signal will have to wait what could be a little while longer.

GBPUSD   13012016


After Monday’s positive candle and Tuesday’s very neutral (almost spinning top) candle, a strong start to the day seems to be engaging some of the bulls finally. And with this move we are getting some signs of life in the momentum indicators which have been so negative for so long. If the pair closes here tonight we will have had a classic crossover buy signal on the RSI and a near confirmation of a buy signal on the Stochastics. The daily chart shows the barrier overhead that needs to be overcome though, with the 23.6% Fibonacci retracement which forms the basis of old support turned new resistance at 118.50. Take this, with the hourly chart which shows an important near term pivot at 118.75 and the resistance overhead is sizeable. However the hourly chart also shows the improvement in the outlook with initial resistance at 118.00 breached, an improvement in the RSI which is now at its highest in 2 weeks and the pair also having moved above all the hourly moving averages. If 118.75 can be breached then this opens 119.70 as the next reaction high. Initial support comes in at 117.35.

USDJPY   13012016


My confidence in gold is shaking. Whilst I am happy with the construction of the base pattern I am also aware that gold has been trading as a safe haven recently and any improvement in market sentiment is likely to negatively impact on gold. This could now be coming through. This has resulted in gold moving back below the neckline support at $1089 and now means that $1077 is in range again. I am turning near term neutral for now whilst the price trades between $1077/$1089, turning negative if $1077 is broken (because this is such a key pivot. The bulls will hope that this is just the unwinding of near term momentum and the RIS back around 50 will be where the support starts to kick in. A close back above $1089 would give the bulls confidence again.

Gold   13012016


The sell-off on oil is becoming incessant. With seven negative closes in a row (i.e. on every day this year) the price of WTI yesterday briefly touched below the $30 per barrel psychological support, tipping to $29.93 before an intraday bounce. If the level is broken, there are a couple of minor lows from 2003 at $29.30 and $28.25 and $26.65, but the next real price support is at $25.00, the key 2003 low. Additionally there is a 100% Fibonacci projection of the June to August $61.50/$37.75 projected lower from the October high at $50.90 which gives a 100% Fib target of around $26.90. The RSI is stretched at around 25 but spent much of the late summer between 20/30 during the previous sell-off, so there is a precedent for further weakness. Resistance is now initially $32.10/$32.20 with $34.00/$34.35 now key.

WTI   13012016